The US Bureau of Labour Statistics yesterday seemingly offered investors a Hollywood ending to their summer woes. The Dow Jones soared once more as it emerged that after a revision August’s shock fall in employment had all been a dream.

Wall Street should wake up. While the world’s biggest economy may not be in quite such a dire state as it appeared a few weeks ago, there remains no escape from the crisis that is continuing to unfold. House price falls are continuing to accelerate. Property prices in major cities dropped by 3.9 per cent in the year to July, compared with 3.4 per cent the previous month. That of course was before the credit squeeze that has forced the huge US banks to lop billions of dollars from their expected profits.

Furthermore, today’s employment data are simply not that good from a broader view. US employment growth typically accounts for more than half of the expansion in GDP, so there is an important correlation between the two.

According to Charles Dumas, of Lombard Street Research, the employment level is “not in the recession zone – but it is not in the trend-growth zone either, let alone a strong economy.” Some 130,000 jobs were cut in financial services companies, more than half by traditional mortgage and sub-prime lenders, in the first nine months of the year, according to Challenger, Gray & Christmas, the employment research firm. That means that the financial services sector has cut more jobs than even the declining carmaking sector. This Christmas will see little of the huge rush of bonus-driven spending of previous years.

As the housing market crisis deepens, the problems with securities linked to sub-prime loans are not going to vanish. Can anyone be sure that the worst is really over? Despite the Federal Reserve’s half-point rate cut, the market’s confidence is perplexing.

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